PErspective in Manufacturing

A feature examining the role of private equity in the manufacturing sector.

As the healthcare industry embraces value-based payment models and providers evolve their business models to focus on outcomes, they’re looking to achieve more with less and optimize productivity. All the while, new technologies and automation are opening the door for innovation in manufacturing facilities across industries and enabling faster, smarter production—which is particularly good news for manufacturers serving the healthcare and life sciences industries.

Medical devices are subject to stringent guidance and jurisdictional regulations–and that brings up costs and liability in spades, including false claims liability, potential recalls and costly subsequent regulatory approvals. More compliance changes, including potential reductions in regulation, could be on the horizon. In March, President Trump nominated Scott Gottlieb (former senior fellow with The BDO Center for Healthcare Excellence & Innovation) to FDA commissioner, whose confirmation at press time was pending final Senate vote. Industry change opens opportunities for private equity firms to invest in medical device manufacturers to help them leverage new technologies, streamline processes and achieve cost savings in the face of a turbulent regulatory environment.

Several notable private equity deals and bids emerged recently in the medical device and pharmaceutical manufacturing sectors, including:

  • MedPlast Inc., a global services provider in the medical device industry backed by private equity firms JLL Partners and Walter Street Healthcare Partners, will acquire Vention Medical’s device manufacturing services in a deal expected to close in the second quarter, reports PE Hub. Terms of the deal were not disclosed. According to a press release, the acquisition will more than double MedPlast’s size. The company aims to expand its capabilities in assembly and packaging with the acquisition and increase its global footprint to 22 manufacturing facilities.
  • European private equity firm EQT Mid Market bought conveyor manufacturer Dorner Holding Co. from Pittsburgh-based private equity firm Incline Equity Partners, the owner since June 2012. The deal closed on March 15 and terms were not disclosed. Dorner services the medical and pharmaceutical industries, as well as packaging and food handling. EQT Mid Market targets companies with strong market positions and potential for global growth in the middle market and plans to grow Dorner organically and strategically, according to Milwaukee Business News.
  • On the pharmaceutical manufacturing side, German drug maker Stada Arzneimittel AG has found itself in a red-hot bidding war. Private equity firms Advent International Corp., Permira, Cinven Ltd. and Bain Capital made offers, with Chinese company Shanghai Pharmaceuticals Holding Co. reportedly showing interest as well. Bloomberg reports Stada’s shares have rallied nearly 70 percent in the past year to $55.81, including a jump in mid-February of 13 percent in a single weekend. In an effort to draw in bigger buyout offers, the company has laid out numerous cost-cutting measures, including optimizing its supply chain management and procurement process, reports FiercePharma.

Future PErspectives: What’s Up Next for Manufacturing Investors

President Trump has connected with cabinet members and members of the business community recently to discuss his infrastructure plan, which will likely lean on public-private partnerships, according to Axios. Building materials, steel and equipment manufacturers who’d be tapped for bridge-and-tunnel infrastructure projects could be primed for investment. Axios also reports digital infrastructure could be a focus of the plan, including rural broadband access, meaning opportunities could emerge for investment in manufacturers of mobile and digital infrastructure.

This article originally appeared in BDO USA, LLP’s “Manufacturing Output” newsletter (Spring 2017). Copyright © 2017 BDO USA, LLP. All rights reserved.